May Housing Market Reports Slight Uptick Amid High Mortgage Rates
Sales of previously owned homes demonstrated a modest increase in May, rising by 0.8% from April’s figures, leading to a seasonally adjusted annualized rate of 4.03 million units, as per data from the National Association of Realtors (NAR). This subtle growth defied analyst expectations, which had anticipated a 1% decline, although sales remain 0.7% lower than the same month last year.
The Northeast region experienced the strongest growth, with sales climbing 4.2% month-over-month. Meanwhile, the Midwest and South also recorded increases, contrasting sharply with the West, which suffered a 5.4% drop. Notably, the West is acknowledged as the most expensive housing market in the country, which could explain its declining sales.
Market Dynamics and Future Outlook
The reported sales figures reflect transactions completed in May, typically from contracts signed in March and April. Mortgage rates remained steady in March but surged past 7% in April, contributing to the relatively subdued sales activity. Lawrence Yun, NAR’s chief economist, indicated that high mortgage rates have stifled market growth, stating, “Lower interest rates will attract more buyers and sellers to the housing market.” He added that a decrease in rates during the latter half of the year could spur a significant uptick in home sales owing to robust income growth, healthy inventory, and record employment levels.
A notable increase in housing supply could be a driving factor behind the sales uptick. By the end of May, there were approximately 1.54 million homes available for purchase, marking over a 20% increase from the same period last year. This translates to a supply level of 4.6 months at the current sales pace, which is still considered low by historical standards. Consequently, home prices continue to face upward pressure. The median price for an existing home sold in May reached $422,800, reflecting a 1.3% year-over-year increaseâ€â€a record high for that month.
The competitive landscape remains challenging, with 28% of homes selling above their list prices, up from 18% the previous month. However, this figure is slightly down from 30% in May 2024. Notably, higher-end market segments have exhibited stronger sales due to increased supply, although sales in the $1 million-plus category have dipped compared to last year. The $750,000 to $1 million segment saw a modest increase of 1%. Yun noted, “The upper end market is showing no difference compared to other price points. For the past 20 months we have seen the upper end outperforming, but that is no longer the case,” citing market fluctuations as a potential factor.
Homes are also taking longer to sell, averaging 27 days compared to 24 days last year, while first-time buyers account for only 30% of transactions, marking a decrease from 31% in the previous year. All-cash transactions have increased to 27%, indicating a shift in buyer behavior possibly influenced by current economic conditions.